Younger workers fear rising health care costs
By Donald Jay Korn
Source: eba.benefitnews.com
Workers in Generations X, Y and beyond may be decades from retirement but they already have multiple concerns about their future finances.
In a Harris Interactive online survey for T. Rowe Price, more than half of respondents listed seven different retirement worries:
1. Health care costs (76%).
2. Rising taxes (67%).
3. Viability of Social Security (63%).
4. Inflation (61%).
5. Long-term care (58%).
6. Outliving their savings (52%).
7. Housing values (52%).
“Investors are concerned about rising health care costs, and they should be,” says Stuart Ritter, senior financial planner with T. Rowe Price. “According to the Employee Benefits Research Institute, health care costs are the second-biggest expense for those aged 65 and older, behind housing, and it’s the only spending category that steadily increases with age.”
To raise the necessary cash, working longer may or may not be an option, but saving and investing more is often indicated. “One of the perennial lessons younger investors can learn from current retirees is to save at least 15% of their earnings and begin as early as possible,” Ritter stated. “The ones who do are the ones more likely to enjoy the retirement flexibility and lifestyle that financial independence can provide.”
Donald Jay Korn writes for Financial Planning, a SourceMedia publication.
Highlights of Rules on Essential Health Benefits and Actuarial Value
On Nov. 20, 2012, the Department of Health and Human Services (HHS) issued a proposed rule that addresses a number of questions surrounding essential health benefits and determining actuarial and minimum value. This rule is still in the "proposed" stage, which means that there may - and likely will - be changes when the final rules are issued.
Provisions that Particularly Affect Insured Small Employers
Beginning in 2014, nongrandfathered insurance coverage in the individual and small group markets will be required to provide coverage for "essential health benefits" (EHBs) at certain levels of coverage. The proposed rule:
- Confirms that these policies, whether provided through or outside of an exchange, will be required to:
- cover the 10 essential health benefits:
- ambulatory/outpatient
- emergency
- hospitalization
- maternity and newborn care
- mental health and substance use
- prescription drugs
- rehabilitative and habilitative services and devices - e.g., speech, physical and occupational therapy
- laboratory services
- preventive and wellness services and chronic disease management
- pediatric services, including pediatric dental and vision care
- provide coverage that meets the "metal" standards (an actuarial value of 60, 70, 80 or 90 percent; actuarial value means the percentage of allowed costs the plan is expected to pay for a standard population)
- meet cost-sharing requirements (in most instances, the deductible for in-network services could not exceed $2,000 per person or $4,000 per family, and the out-of-pocket limit for in-network services could not exceed the high deductible health plan limit for health savings account eligibility, which is currently $6,050 per person or $12,100 per family)
- cover the 10 essential health benefits:
- Confirms that each state would choose its own EHB package, based on a "base-benchmark" plan already available in the state. Many states have already chosen their base-benchmark plan; those who have not done so have until Dec. 26, 2012, to make their selection or the federal government will make the selection for them. Information on state elections to date and the policy that will apply if no choice is made is here: Additional Information on Proposed State Essential Health Benefits Benchmark Plans | cciio.cms.gov
- Provides a way to cover any gaps in EHB coverage under the base-benchmark plan (because many plans do not currently cover habilitative care or pediatric vision / dental services)
- Provides that other policies in the exchange and small-group market must generally provide the same coverage within each EHB category as the base-benchmark plan, but that they may substitute an actuarially equivalent benefit within a category
- States that HHS will provide a calculator that must be used in most situations to determine actuarial value
- Provides that a plan that is within 2 percent of the metal standard would be acceptable (for instance, a plan with an actuarial value of 68 percent to 72 percent would be considered a "silver" plan)
- Provides that state mandates in place as of Dec. 31, 2011, would be considered EHBs
- Provides that current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) would be considered as part of the actuarial value calculation
Provisions that Particularly Affect Self-Funded and Large Employers
- States that HHS and the IRS would provide a minimum value calculator and safe harbor plan designs that self-funded and large-group plans could use to determine whether the plan provides minimum value (the safe harbor plan designs were not included in the proposed rule)
- Provides that current-year employer contributions to an HSA or a HRA would be considered as part of the minimum value calculation
- Resolves an ambiguity in the law and provides that the restrictions on maximum deductibles would not apply to self-funded and large-employer plans.
Same-Sex Couples (still) Not “Married” for Federal Tax Purposes
by Robert A. Browning,
The Internal Revenue Service (IRS) has recently issued guidance, through answers to frequently asked questions (FAQs), clarifying how same-sex couples who are in state recognized domestic partnerships, civil unions, or marriages should file their federal income tax returns. These FAQs address a key provision of the Defense of Marriage Act (DOMA), which denies recognition of same-sex marriages or unions for purposes of administering federal law.
Even though the Obama administration has decided not to defend this key DOMA provision, and even though a number of federal courts (including two appellate courts) have held the provision to be unconstitutional, the IRS continues to maintain that same-sex couples do not qualify for the same tax benefits that are available to taxpayers who are married to someone of the opposite sex. This is true even if a same-sex couple is legally married under state law. This IRS position could have implications in a number of benefit-plan contexts.
Background
Section 3 of DOMA defines “marriage,” for purposes of administering federal laws, as a “legal union between one man and one woman as husband and wife.” It also defines “spouse” as “a person of the opposite sex who is a husband or wife.” Consequently, DOMA prohibits the federal government from recognizing same-sex marriages (or domestic partnerships or civil unions). This prohibition affects federal income taxes, Social Security benefits, and more than 1,000 other federal laws – including ERISA and the tax laws governing employee benefits.
A number of federal trial courts (now joined by two federal appellate courts) have ruled in favor of plaintiffs challenging this provision of DOMA in various tax-related contexts. In Massachusetts v. Health and Human Services, the First U.S. Court of Appeals upheld a lower court’s ruling that Section 3 of DOMA violates the U.S. Constitution. More recently, in Windsor v. U.S., the Second U.S. Court of Appeals upheld a trial court’s ruling that DOMA violates the Equal Protection Clause of the U.S. Constitution. In Windsor, the appellate court concluded that laws affecting homosexuals as a class are subject to heightened scrutiny, and when viewed in light of such scrutiny, the disparate treatment of same-sex spouses is not “substantially related” to an important government interest.
On February 23, 2011, Attorney General Eric Holder published a statement indicating that both he and President Obama had concluded that Section 3 of DOMA is unconstitutional. The Attorney General’s statement provided that the Department of Justice would no longer defend the constitutionality of DOMA’s Section 3 as applied to same-sex married couples in cases filed within the Second Circuit. However, the statement also noted that DOMA remains in effect until Congress repeals it or there is a final (i.e., Supreme Court) judicial decision striking it down. The statement concluded by noting that, although the Justice Department would not defend DOMA in court, the Executive Branch would continue to enforce the law.
The Obama administration has formally asked the Supreme Court to step in (as the 3 final arbiter of the constitutionality of the law), and many legal experts expect the Supreme Court to rule on DOMA’s constitutionality in the near future – possibly as early as the spring of 2013.
IRS Guidance
In its recent FAQs, the IRS continues to defer to DOMA on questions concerning same-sex couples’ federal income tax returns. In summary, the guidance provides that:
- Same-sex couples who are legally married for state-law purposes may not file a return using either the “married filing jointly” or “married filing separately” status;
- An individual may not file as a “head of household” based solely on his or her same-sex partner, regardless of whether the same-sex partner is the taxpayer’s dependent;
- If a child is a “qualifying child” (under Code Section 152(c)) of both parents who are same-sex partners, then either parent – but not both – may claim a dependency deduction for the child;
- If a same-sex couple adopts a child together, each partner may claim the adoption credit in an amount equal to the qualified adoption expenses paid or incurred by that partner, but the partners may not both claim a credit for the same expenses; and
- If an individual adopts the child of his or her same-sex partner, the individual may claim an adoption credit for the qualifying adoption expenses.
These FAQs confirm that, notwithstanding the President’s decision not to defend DOMA in court, and notwithstanding the fact that DOMA has now been held unconstitutional by two appellate courts, the IRS will continue to apply and enforce federal tax laws in accordance with DOMA’s Section 3.
Therefore, until there is action by either Congress or the Supreme Court, employers must (by way of example) continue to report the value of health insurance provided to an employee’s non-dependent, same-sex spouse or partner as additional taxable income to the employee, and they must continue to limit “spousal” rights under ERISA-covered plans to participants who are married to someone of the opposite sex.
IRS Issues Three Proposed Regulations Addressing Open Issues Under PPACA
On Nov. 20, 2012, the Department of Health and Human Services issued three sets of proposed rules that provide some of the needed details on how PPACA will probably unfold. The proposed rules address:
- Wellness programs under PPACA
- Essential health benefits and determining actuarial value
- Health insurance market reforms
The proposed rule largely carries forward the rules that have been in effect since 2006. There still would not be limits on the incentives that may be provided in a program that simply rewards participation, such as a program that pays for flu shots or reimburses the cost of a tobacco cessation program, regardless whether the employee actually quits smoking. Programs that are results-based (which will be called "health-contingent wellness programs") still would need to meet several conditions, including a limit on the size of the available reward or penalty. Beginning in 2014, the maximum reward/penalty would increase to 50 percent for tobacco nonuse/use and to 30 percent for other health-related standards.
The proposed rule confirms that nongrandfathered plans in the exchanges and the small-group market will be required to cover the 10 essential health benefits and provide a benefit expected to pay 60, 70, 80 or 90 percent of expected allowed claims. The proposed rule also says that self-funded plans and those in the large employer market would not need to provide the 10 EHBs; instead, they would need to provide a benefit of at least 60 percent of expected allowed claims and provide coverage for certain core benefits. The proposed rule would consider current year employer contributions to a health savings account (HSA) or a health reimbursement arrangement (HRA) as part of the benefit value calculation.
The proposed rule confirms that nongrandfathered health insurers (whether operating through or outside of an exchange) would be prohibited from denying coverage to someone because of a pre-existing condition or other health factor. The proposed rule also provides that premiums for policies in the exchanges and individual and small-group markets could only vary based upon age, tobacco use, geographic location, and family size and sets out details on how premiums could be calculated.
Failure to Timely Allocate Forfeitures
by: Chadron J. Patton
Sponsors of 401(k) plans often fail to timely use or allocate forfeitures, thereby potentially disqualifying the plan. Recent IRS audits have revealed a renewed focus on the proper use of forfeitures – making compliance a top priority for plan sponsors.
Forfeitures are generally created when a participant leaves employment before completing the period of service needed to become fully vested in matching or other employer contributions. The non-vested portion of the participant’s account may then be forfeited. (In practice, many plans specify that the forfeiture occurs only after the participant has incurred five consecutive oneyear breaks in service.) Some plan sponsors or third party administrators (TPAs) then place the forfeited amounts into a plan’s suspense account, allowing the forfeitures to accumulate over a period of several years. This practice is impermissible.
The IRS requires that forfeitures be used or allocated for the plan year in which they arise or, in appropriate circumstances, the following plan year. Forfeitures may be used 5 to (1) pay a plan’s reasonable administrative expenses, (2) reduce employer contributions, (3) restore previously forfeited participant accounts, or (4) provide additional contributions to participants. The plan document must clearly define how and when forfeitures will be used. (Note: The IRS has recently taken the position that forfeitures cannot be used to fund 401(k) safe harbor contributions, because those contributions must be 100% vested when made to the plan. Future guidance is expected on this issue, however.)
Among the most common reasons for failing to timely allocate forfeitures are the following:
- A plan sponsor or TPA fails to monitor the plan's forfeiture account to ensure that forfeitures generated during a plan year are used according to the plan's terms.
- A plan sponsor and TPA both assume that the other party will be taking care of the forfeitures - and neither does so.
- A plan sponsor erroneously assumes that it has discretion over how and when forfeitures held in a suspense account are to be applied.
- A plan's terms are vague in describing how forfeitures are to be handled.
- A plan sponsor elects not to make a discretionary contribution for a plan year and, because there are no contributions to offset with forfeited amounts, the sponsor fails to allocate the forfeitures.
- A plan sponsor pays administrative expenses directly or through revenue sharing, without thinking to use forfeitures to pay those expenses.
This common plan mistake may be corrected by reallocating all forfeitures in the plan’s forfeiture suspense account to any participants who should have received them had the forfeitures been allocated on a timely basis. Depending on the plan’s terms, or on the facts and circumstances of a particular situation, it may also be appropriate to apply forfeitures from prior years as an employer contribution for the current year.
Plan sponsors may correct this mistake under the IRS’s Employee Plans Compliance Resolution System (EPCRS). Under the EPCRS’s Self-Correction Program, the mistake must generally be corrected within two years following the close of the plan year in which it occurred (unless the failure can be classified as insignificant). The Voluntary Correction Program (VCP) must then be used after this two-year period. VCP must also be used if the plan’s terms are defective and must be retroactively corrected through a plan amendment.
Finally, here are some suggestions for plan sponsors looking to avoid this common plan mistake:
- Review your plan document to ensure that there are clear procedures in place for the timing and use of forfeitures - and follow those procedures. If there are no procedures, or if they are vague, amend the plan document to add or clarify them.
- Review the forfeiture suspense account at least annually to verify that forfeitures are actually being used or allocated.
- Communicate with your TPA or record keeper to avoid any uncertainty as to whose responsibility it is to handle forfeitures.
Losing by Winning, Case Offers Harsh Reminder Concerning Preventable Expenses
The circumstances behind a recent court decision were typical, and their consequences painfully predictable. Although the plan administrator “won,” that victory does not reflect the huge—and entirely unnecessary—cost to the plan sponsor in terms of overhead and legal fees.
Herring v. Campbell was a fight over who would receive the retirement benefits accrued by John Wayne Hunter, a participant in an ERISA-governed plan. When Mr. Hunter died, he left behind a $300,000 account balance. Although he had properly designated a beneficiary (his wife), she died before he did. And because he had never designated a new beneficiary, it fell to the plan administrator to choose between the two parties who claimed Mr. Hunter’s benefits.
The plan document included a fairly typical list of default beneficiaries. These were, in order of priority, Mr. Hunter’s surviving spouse, his children, his parents, his brothers and sisters, and his estate. Mr. Hunter left no spouse, no natural or adopted children, and no parents. He was, however, survived by two stepsons and six siblings. The plan administrator therefore had to decide which of these two groups was entitled to split Mr. Hunter’s money. If the stepsons were his “children” under the plan, they would be his beneficiaries. If not, then his siblings would receive the benefit.
The plan’s ambiguity as to the definition of this single word (children) caused the administrator and sponsor to be dragged into court. The litigation lasted several years, leading all the way to the United States Court of Appeals for the Fifth Circuit—just one step short of the Supreme Court.
None of this was necessary. Here were the entirely preventable steps in this matter:
- First, the administrator considered and rejected the stepsons' (weak) claim that they were entitled to the $300,000 under the Texas probate law doctrine of "equitable adoption." She instead distributed the account, in equal shares, to Mr. Hunter's siblings.
- The stepsons appealed the decision. The plan administrator reviewed the appeal and again denied their claim.
- The stepsons then moved their claim to federal court, and the trial judge ruled in their favor.
- The plan administrator filed a motion for reconsideration, which the trial-court judge denied.
- The administrator was therefore forced to file her own appeal in the Fifth Circuit, where a three-judge panel reversed the district court's ruling, bringing the matter full circle.
The fact that the second-highest court in the land vindicated the administrator’s decision is of little comfort to the administrator, who spent years on an entirely pointless legal battle in which she had no real stake. Nor was being right on the law any comfort to the plan sponsor, which had to pay the (presumably massive) legal fees and court costs in both the federal district court and the Fifth Circuit.
In other words, the interesting legal issues in this case (for example, the proper standard for reviewing a plan administrator’s decision when the plan document is silent about something) are beside the point. Rather, the lesson is that the entire conflict could have been avoided by simply stating, in the plan document, that stepchildren either are or are not “children” for purposes of determining a beneficiary when a participant dies without designating one.
Plan sponsors should review their plans’ default beneficiary provisions and see what— entirely preventable—dangers might lurk there.
Lawrence Jenab, Partner Spencer Fane Britt & Browne LLP
Correcting Operational Mistakes Can Eliminate Fiduciary Liability
Over the past decade, plan sponsors have become familiar with the voluntary correction programs offered by the IRS and Department of Labor, including the Service’s Employee Plans Compliance Resolution System (EPCRS) and the DOL’s Voluntary Fiduciary Correction Program (VFCP). These programs offer formal ways for sponsors to correct certain administrative errors in the operation of their plans. Even if employers choose not to avail themselves of these formal programs, however, correcting administrative mistakes can eliminate the risk of fiduciary liability under ERISA.
Operational errors in administering a retirement plan not only threaten the plan’s “qualified” status under the Tax Code, but can also result in fiduciary liability under ERISA for those who are responsible for the errors. One of the primary duties imposed on ERISA fiduciaries is to administer the plan “in accordance with the documents and instruments” governing it. Failing to do so is a violation of that fiduciary duty, which can lead to personal liability. And administrative errors almost always involve a failure to comply with a plan’s terms.
A Massachusetts employer recently prevailed on a fiduciary breach claim because the employer had voluntarily corrected its administrative error. In this case, Altshuler v. Animal Hospitals Ltd., the employer had failed to timely remit an employee’s salary deferral contributions to its SIMPLE 401(k) plan. After learning that several months of her contributions had not been deposited into the plan, Ms. Altshuler complained to the company’s president. The company voluntarily corrected its error by making all of the outstanding contributions, plus interest, and then fired Ms. Altshuler. She filed suit against the employer under ERISA, claiming (among other things) that the company breached its fiduciary duty to promptly deposit employee contributions, as required by the plan document.
The court ultimately determined that the employer had, in fact, breached its fiduciary duty under ERISA. It also ruled, however, that because the employer had already made the delinquent deposits – and thus had made the participant “whole” – the participant was not entitled to any remedy. Ms. Altshuler had been given everything to which she was entitled under the plan (the contributions and earnings), and the limited scope of remedies available under ERISA precluded her from receiving anything else from the company. Thus, although the company’s voluntary correction of its administrative error did not excuse the resulting fiduciary breach, it effectively insulated the company from liability.
Gregory L. Ash, Partner
Spencer Fane Britt & Browne LLP
Court orders new look at health care challenge
BY MARK SHERMAN
Source: https://www.benefitspro.com
WASHINGTON (AP) — The Supreme Court has revived a Christian college's challenge to President Barack Obama's healthcare overhaul, with the acquiescence of the Obama administration.
The court on Monday ordered the federal appeals court in Richmond, Va., to consider the claim by Liberty University in Lynchburg, Va., that Obama's health care law violates the school's religious freedoms.
The court's action at this point means only that the 4th U.S. Circuit Court of Appeals must now pass judgment on issues it previously declined to rule on.
A federal district judge rejected Liberty's claims, and a three-judge panel of the 4th Circuit voted 2-1 that the lawsuit was premature and never dealt with the substance of the school's arguments. The Supreme Court upheld the health care law in June.
The justices used lawsuits filed by 26 states and the National Federation of Independent Business to uphold the health care law by a 5-4 vote, then rejected all other pending appeals, including Liberty's.
The school made a new filing with the court over the summer to argue that its claims should be fully evaluated in light of the high court decision. The administration said it did not oppose Liberty's request.
Liberty is challenging both the requirement that most individuals obtain health insurance or pay a penalty, and a separate provision requiring many employers to offer health insurance to their workers.
Liberty law school dean Mathew Staver said, "This case now will go back to the federal court of appeals where we will address the undecided issues that the Supreme Court did not address."
When Liberty's case was in front of the 4th Circuit, Judge Andre Davis broke with his colleagues who thought the challenge was premature. Davis said of Liberty's claims, "I would further hold that each of appellants' challenges to the act lacks merit."
The appeals court could ask the government and the college for new legal briefs to assess the effect of the Supreme Court ruling on Liberty's claims before rendering a decision.
Liberty's case joins dozens of other pending lawsuits over health reform, many involving the requirement that employer insurance plans cover contraception. These cases are working their way through the federal court system.
The case is Liberty University v. Geithner, 11-438.
Associated Press writer Brock Vergakis in Norfolk, Va., contributed to this report.
Communication Techniques in the Workplace
by Leigh Richards, Demand Media
Source: https://smallbusiness.chron.com
Communication skills are critical in all walks of life, but communicating effectively in the workplace is critical to professional success. Whether interacting with colleagues, subordinates, managers, customers or vendors, the ability to communicate effectively using a variety of tools is essential. Building strong communication skills requires a focus on effective interactions and the ability to listen so you understand and focus on meeting the needs of others. In addition, in today's technology-driven world, effective communicators stay up to date on the tools available to them.
Step 1
Determine your communication objective. Every communication has a purpose, and identifying that purpose is the first step in effective communication. Whether you want to inform, influence, persuade or sell, having an end goal in mind can help you communicate effectively.
Step 2
Analyze your audience. The more you know about your audience, the better job you will do in communicating with it. For instance, if you want your boss to give you approval to attend a conference and you know he's concerned about staying up to date on key industry trends, that's a point you can bring up in your interactions. If you know your boss is most concerned about the bottom line, consider how your attendance at the program could help increase sales or improve efficiencies that might cut costs.
Step 3
Select communication tools—or a mixture of tools. Your purpose and audience will help you determine the best communication tool, or combination of tools, to use. When communicating one on one, some people prefer email, some the phone and some in-person discussions. Choosing the wrong method can hinder your ability to be effective. Consider also the timing of your communications. Approaching the boss right after a tense sales meeting is probably not the best time.
Step 4
Create key messages. People often try to convey too much in a single communication. Decide what your most important points are, given your audience and your objectives. A good rule of thumb is to use no more than three to five main points. These points should become your focus as you craft your message.
Step 5
Listen and learn. Effective communication is often two-way, offering communicators the opportunity to listen and learn, but only if they take advantage of that opportunity. Every opportunity for interaction offers the chance to learn and improve. Finding out areas where you have been misunderstood, or where objectives have not been met, can help you be more effective when engaging with others.
Sick of Sick Time
By Kathryn Mayer
Source: Benefitspro.com
All week, I’ve been hearing hacking and sneezing and various other upsetting noises coming from all different corners of my office.
It’s likely you have, too.
According to a survey of office workers by Staples, nearly 80 percent of office workers come to work even when they know they’re sick. That’s a whopping 20 percent increase just over last year.
And even worse, for those who stay home, more than two-thirds return to work when they’re still contagious, putting coworkers’ health and business productivity at risk.
This isn’t good news: For one, it’s flu season. (If you haven’t heard, that spreads easily and fast.)
It’s a pretty obvious problem we have here, and of course, a pretty obvious solution: Workers who are sick shouldn't come to work. Period. Instead of getting better, you’ll prolong your recovery and sulk around all day not getting work done while spreading germs to a significant amount of people. And that’s just mean.
Too bad following that solution isn’t all that easy. For the sickly workers, they have a valid excuse to show up: For example, the survey shows nearly half of workers cited concerns about completing work as the reason they don’t stay home sick. And, more than a quarter of respondents come to work to avoid using a sick day, even though a majority of those surveyed indicated their average productivity level while sick was only around 50 percent.
In a struggling economy and competitive job market, workers are less likely to spend their time away from the office even if it’s truly needed. And for PTO workers like myself, if you want to take a vacation, it means you better not get sick. If I caught the flu this year, I’d have to cancel a visit to my parents’ home in Boston. That’s a tough, if not unfair, decision to make.
It’s a two-way street to fix the issue. Employees shouldn’t be coming to work, but employers need to encourage them not to—and that’s not happening in a lot of places. If there really needs to be something done, employers should encourage a telecommuting option so they still work while quarantining themselves (win-win—at least for the employer).
But the main issue is our country’s lack of sick time. The United States is actually the only country that doesn’t guarantee paid sick leave. As a result, close to one quarter of adult workers say they’ve been threatened with termination or fired for taking time off for being sick or taking care of a sick family member.
I don't know about you, but that makes me feel ill.